[Management Plan] 6. Just increasing sales will cause a company to collapse - Profit is determined by 'cost design'
Profit is determined not by sales, but by cost design
Even though sales are growing,
for some reason, no profit remains.
In fact, the busier you get,
the tighter your cash flow becomes.
It is not rare for companies to fall into this state.
The cause is clear,
because you are treating profit as a 'result'.
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Management Plan
Many management plans
are structured like this.
Sales → Cost → Profit
However, as long as you think in this order,
profit cannot be controlled.
This is because
sales are uncertain,
and the costs that hang below them also expand in tandem.
What you should actually do is the opposite.
'What gross profit structure will make this viable'
must be decided first.
In other words,
Gross Profit → Sales
is the order in which you should design it.
For example,
even though the business requires a 40% gross profit margin
you are actually only achieving 30%
What happens if you only increase sales in this state?
As sales increase,
the deficit will also expand.
This is the true nature of
a company that is growing but struggling.
the identity of.
--
What is cost design?
Cost design is not about cutting costs.
It is about fixing the structure that generates profit in advance.
To do this, you need to align your
'approach to costs'
itself.
Key points for cost design
(1) Cost design based on exchange rates (imports/exports)
When imports and exports are involved,
costs are highly dependent on exchange rates.
What is important here is to
fix which rate to assume beforehand.
Are you looking at the current rate?
Are you looking at a conservative rate?
Are you designing based on hedging?
If you leave this ambiguous,
you will end up in a state where sales are correct but only costs fluctuate.
As a result, you will not be able to predict profits.
(2) Definition of variable costs (can purchasing be controlled?)
When there is purchasing of goods,
treating everything as the same
'variable cost'
will cause the design to collapse.
What is important is
Whether or not that procurement can be controlled
.
Procurement where costs can be lowered through negotiation or switching
Procurement that is market-dependent and cannot be controlled
These two have different meanings, even though they are both variable costs.
The former is a 'design target,' while the latter is a 'prerequisite.'
Unless you distinguish between these,
you cannot perform realistic cost design.
(3) Distinguishing between fixed costs and SG&A expenses
This is where many companies are ambiguous.
Costs that should be included in the cost of goods sold
Costs that should be treated as SG&A expenses
If this distinction breaks down,
the definition of gross profit itself is ruined.
Particular attention should be paid to:
Labor costs directly tied to provision
Product maintenance costs
Support and operational man-hours
In many cases, these should be treated as
fixed costs
rather than SG&A expenses.
If you shift these to SG&A expenses,
gross profit will be overestimated, leading to incorrect decision-making.
(4) Defining man-hours as CAC (Management Accounting)
What is important for management accounting is
how marketing and sales labor hours are handled.
This is where
CAC (Customer Acquisition Cost)
comes in.
CAC refers to the
total cost incurred to acquire one customer
.
Generally, advertising expenses are looked at, but
that alone is insufficient.
In practice,
Advertising expenses
Marketing labor hours (planning, operation, improvement)
Sales labor hours (lead response, negotiations, closing)
You need to include all of these
and define them as CAC.
For example,
Advertising expenses: 100,000 yen
Marketing labor hours: 50,000 yen
Sales labor hours: 50,000 yen
In this case, the CAC is 200,000 yen.
However, many companies
only look at the 100,000 yen in advertising expenses.
This leads to
appearing profitable when actually in the red
making incorrect investment decisions
collapsing upon scaling
a state where these things happen.
What is important is
recognizing man-hours as a cost
.
Time is not free.
Every man-hour has an opportunity cost.
Once you correctly define CAC,
profitability per customer
payback period
feasibility of investment expansion
can finally be determined.
Execution flow of cost design
Based on this,
the design will look like this.
Determine the gross profit line
Break down costs
Identify controllable areas
Fix external assumptions such as exchange rates and market factors
Judge based on actual costs including CAC
Conclusion
Sales cannot be fully controlled.
But the cost structure
can be fixed through decision-making.
And once the structure is wrong,
it is extremely difficult to correct later.
Therefore,
Profit is not determined by sales, but by
cost design.
Structure
Situation: Sales growth and profit decline occurring simultaneously
Problem: The definition and design of costs are ambiguous
Judgment: Structurally decompose and redefine costs
Result: Profit becomes reproducible
Structural explanation: Profit is not a result, but a design target